An IMCU Lifestyle Guide: Preparing For A College Education

According to the Vanguard investment management firm, when today’s babies are old enough to attend college, a year at a private school will cost upwards of $120,000, so a four-year degree will have a price tag of nearly a half-million dollars. Even public colleges are expected to cost $54,000 annually, for a four-year cost of $216,000. That’s why it’s so important to start planning (and saving) for education long before your student is ready. Indiana Members Credit Union created this guide to help you prepare and save, whether college is more than a decade away or coming soon. We’ve included plenty of valuable advice and helpful resources.

WHEN SHOULD YOU START SAVING FOR COLLEGE?
The answer is simple: now, whether your child is a toddler or in high school. Time is the secret weapon in savings, because the earlier you start, the more you’re able to take advantage of the power of compound interest. That means you’ll earn interest on your savings … and additional interest on the interest you’ve earned.

The more money you’re able to put aside, the less your student will need to borrow. While student loans may be easy to obtain, you’ve probably heard about the many college graduates who are overwhelmed by student-loan debt.

WHERE TO KEEP YOUR SAVINGS
Your child’s college fund is important, so you want to be sure you keep the money in a safe place, such as an insured savings account at a credit union or other financial institution. It is important to set up a separate account, because that way, you’ll be less likely to tap into it when other needs arise.

You can use a traditional savings account, such as IMCU’s Membership Savings Account, or a higher-interest account such as our Money Market Savings Account. If you won’t need to access the money for several years, you could also use a Certificate of Deposit.

SPECIAL ACCOUNTS
The government has set up special types of accounts to help parents and other relatives put money aside for a child’s education, including education savings accounts and 529 plans.

COVERDELL EDUCATION SAVINGS ACCOUNTS (known as ESAs) allow you to put money in an account and let it grow tax-deferred. Money can be withdrawn tax-free at any time for qualified educational expenses such as tuition and books. One thing that makes Coverdell ESAs different from other education savings plans is that the money can also be used for private elementary and high school costs.

529 PLANS. These are special savings plans that also allow the money to grow without having to pay taxes on it. Indiana’s state-sponsored plan is known as CollegeChoice 529 (www.collegechoicedirect.com). As with an ESA, money can be withdrawn for qualified expenses such as tuition, room and board, books, and computers, while the student attends eligible colleges, universities, or vocational schools worldwide (not just in Indiana).

If a 529 plan or ESA is in the child’s name, it may affect his or her ability to receive financial aid. That’s one reason why it may be better to put the account in an adult’s name. In addition, keeping the account in the adult’s name allows withdrawals to be made for multiple students. For example, a grandparent with five grandchildren could establish a single account and use it to help all five students pay for school.

Money taken from plans and not used for education expenses may be subject to taxes and a 10 percent tax penalty. That’s why it’s important to talk with your tax preparer and financial advisor before establishing a plan.

NEED HELPFUL ADVICE? There’s a team at Indiana Members Credit Union that can help you with questions about financial planning. Ask the manager of your nearest location to connect you with them!

CHOOSING THE RIGHT SCHOOL
Today’s students have more choices than ever for education, and thanks to the internet, they can easily access information about all of them. With so many choices, it can be difficult to determine which college or university is the best option. A sensible way to make that choice is to follow these steps:

LOOK AT MANY. Students are generally better off when they don’t limit their choices to one or two schools. First, determine what they want to study, and then use the internet and the resources in this guide to identify schools that offer those programs. Based on factors that are important to the student (size of school, distance from home, religious affiliation, etc.), you can develop a list of potential schools. Consider both the advantages and disadvantages of each school. For example, a larger university may offer more resources, but a smaller school may provide more interaction with faculty members.

COMPARE COSTS. What colleges and universities charge for tuition, room and board, and fees varies widely, but determining what your student will actually pay can be complicated. Once you see what a particular school will offer for financial aid, what looks like an expensive private school may actually end up costing less than a public one. Be sure you’re comparing apples to apples.

VISIT THEM. Once your son or daughter has narrowed the list of possible schools, be sure to visit them. Colleges and universities invest in brochures and websites that make them appear to be perfect, so it’s important to see things for yourself. If the school allows prospective students to stay overnight in a dorm, that can be a great opportunity for your student to see if he or she feels comfortable. If you know parents whose kids have attended the schools, ask them about their impressions and experiences. Your student is about to make a life-changing decision, so you want to have has much information as possible.

HOW DOES FINANCIAL AID WORK?

Financial aid programs make it possible for many students who couldn’t otherwise afford higher education to earn degrees. It also makes school much more affordable for many others. However, it is a complicated subject that intimidates many parents and students.

Financial aid comes in a variety of forms. For starters, there are federal grants and loans, state scholarships, aid offered directly by schools, and scholarships offered by independent organizations. Depending upon your family’s situation, your student may receive help from one or more of these sources.

FEDERAL AND STATE PROGRAMS
One of the largest sources of student aid is the federal government, which offers several programs based upon the financial situation of the student and his or her family. Programs include grants (which generally don’t have to be repaid), loans (which must be repaid), and work-study programs, in which the student earns money while working part-time. Other programs are available to members of the armed forces and to students pursuing certain career fields.

The state of Indiana offers several different grant programs and special aid packages for people pursuing particular careers. Students whose families meet specific income criteria, achieve academic requirements, and who promise not to use drugs or commit crimes may qualify for the 21st Century Scholar program, which pays up to four years of tuition at participating colleges and universities. Your child’s school guidance counselor can provide information.

SCHOOL AID
Nearly every college and university offers a variety of scholarship programs. These may include scholarships for excellent academic performance in high school, for participation in intercollegiate athletics, for specific financial needs, or even for special purposes — such as playing a particular musical instrument! The admissions office can provide more information.

PRIVATE SCHOLARSHIPS
Many national and local organizations offer scholarships to students who meet specific criteria. For example, an organization of nurses might offer scholarships to students who plan to study nursing, while a local civic group might offer money to students from that community. It takes time to research these opportunities, but they can quickly add up.

COMPLETE THE FAFSA
The first step in qualifying for most forms of financial aid is to complete an online form known as the FAFSA, which is short for Free Application for Federal Student Aid. It’s available online at fafsa.ed.gov, and while it’s designed primarily for determining student eligibility for federal aid programs, most other funding sources use it, too.

The FAFSA is a complicated application that students and parents will need to complete together. It requires detailed financial information (although it can import much of it from your federal tax return). However, you should complete it as early as possible. Many schools have a limited amount of aid available, and it is often distributed on a first-come, first-served basis.

When you complete the FAFSA, you can list colleges and universities that you’re considering, and the government will automatically send them information about your financial situation. Most schools will then notify you about how much financial aid they are willing to provide, so you can compare which school has the best deal.

TWO TIPS
1. If the school your child wants to attend isn’t offering as much aid as you’d like, ask the financial aid office for more. Nearly every school has additional funds available. Saying “Anita would really like to go to school here, but her second choice is offering an additional $2,000 in scholarships” may motivate the school to make up the difference. It never hurts to ask.

2. When considering tuition and room and board, don’t forget to look at other costs, such as fees, books, and living expenses. Transportation is a consideration, too. A college halfway across the country may seem like a bargain, but if you have to buy expensive flights to get there and back, it may not be a great deal.

HOW DO STUDENT LOANS WORK?
There are several types of student loans, with different requirements. We’ll examine each separately. You’ll find more information about the federal programs at http://www.studentloans.gov.

FEDERAL PERKINS LOANS
This school-based federal program is for students who have exceptional financial needs. The loan is made by the school, but backed by the federal government. Undergraduate students may borrow up to $5,500 annually, depending upon their qualifications. Graduate students may qualify for up to $8,000.

FEDERAL DIRECT LOANS
Most students who qualify for federal loans receive direct loans. There are two types:

DIRECT SUBSIDIZED LOANS are for undergraduate students who qualify for financial help.

DIRECT UNSUBSIDIZED LOANS are for eligible undergraduate, graduate, and professional students who don’t necessarily qualify for financial assistance, but who don’t have enough money on hand to cover their college costs.

Undergraduate students may qualify for between $5,500 to $12,500 per year in direct loans, depending on their financial situation and where they are in their college education. Graduate students may be eligible for up to $20,500 each year in direct unsubsidized loans.

PLUS LOANS
Students who need additional loans may qualify for what’s called a PLUS loan, which stands for Parent Loan to Undergraduate Students. With a PLUS loan, the parent actually agrees to borrow money for the student. The student uses the proceeds to pay for tuition, textbooks, living expenses, or other needs.

PLUS loans are made by the U.S. Department of Education to parents of students who are enrolled at least half-time in an undergraduate program at an eligible school. You can borrow up to the total cost of attending the school, less any other financial aid you may receive. Parents are expected to start making loan payments immediately, but can request a deferment until six months after graduation. However, interest will continue to be applied during the deferment period. PLUS loans are also available to students in graduate school and professional programs such as medical school.

PRIVATE LOANS
Many financial institutions and online lenders offer private student loan programs for families that may not qualify for federal programs. Interest rates, terms, and repayment policies may vary widely, so be sure you compare programs carefully.

IMCU LOAN PROGRAMS
Indiana Members Credit Union offers two private student loan programs. Students may take advantage of the Smart Option Student Loan®, which provides a choice of competitive rates (including fixed- and variable-rate options) and has no origination fees. Parents can fund their students’ education through the Parent Loan, which has competitive interest rates and the flexibility of two repayment options. You can find more information about both loan programs at http://www.imcu.com or at any of our locations.

SMART STRATEGIES FOR SPENDING LESS

There are many other steps students can take to reduce the cost of a college education. We’ve included several great ideas here.

GET AN EARLY START
Today, most high schools give students an opportunity to earn college credits while they’re working on their high school diplomas. Students can take dual-credit classes, in which they earn both a high school grade and college credit. They can also take AP classes, in which they learn college-level material and then are tested. A high-enough score on an AP test provides college credit.

There are two advantages to this approach. First, the fees for dual-credit and AP classes are usually much lower than college tuition, so families save money. Second, these classes allow students to get basic or general education classes out of the way more quickly, so they can either spend less time (and money) in college, or take classes in their majors earlier.

START LOCALLY
If your student plans to stay in Indiana for college, one option that can save a great deal of money is to take general classes at a community college. Most colleges and universities in Indiana will accept community college credits, and taking classes there can cost substantially less.

LIVE FRUGALLY
For many students, college is the first time they’ll be away from home. It’s also the first time they’ll be managing their own money. It’s tempting to splurge on a fancy apartment instead of a boring dorm room, or to eat out every night instead of using the school’s dining halls, but those costs can add up quickly — and if your student is using student loan money to cover them, they’ll pay for their spending for many years. Encourage them to live frugally. It’s a great habit that will pay off for decades to come.

SPEND LESS ON TEXTBOOKS
As if college weren’t expensive enough, students have to buy textbooks that may add up to hundreds of dollars. Fortunately, there are ways to cut the cost of textbooks.

START EARLY. The earlier students look, the better their chances of finding used books at the bookstore or online sites. They may even be able to find students who have taken the course and are eager to unload their copies. The bargains go to those who act quickly.

RENT, DON’T BUY. There are several textbook rental services such as Chegg.com and Rent-a Text.com. Students pay a fraction of the cover price and return them when they’re done. Or, if they would like to keep the book at the end of the semester, they can buy it at a discount.

BUY DIGITAL VERSIONS. At VitalSource.com, students can buy eBook versions of textbooks at a significant discount from the printed versions. They may not find every book there, but they’ll probably find most of them.

USE LIBRARY COPIES. The campus library often has copies of textbooks. Students may not be able to check them out, but they can do their reading at the library. Spending an hour a week there beats paying $300 for their own copy.

SHARE WITH A CLASSMATE. If students have a friend who’s taking the same class, they can split the cost of a copy and share it.

ASK THE PROF. At many schools, professors are required to choose books, but some rarely use them. Ask the professor if buying the book is mandatory, or if notes will be enough to pass the tests.

THREE MORE MONEY-SAVING TIPS
1. DON’T CHANGE MAJORS. Some students can’t make up their minds, and wind up switching majors several times. Each change means having to take a new set of classes, so it could add a year or more to their college journey.

2. TAKE THE MAXIMUM. Take as many credit hours as the tuition payment allows. For example, if the tuition payment covers 12 to 15 hours each semester, taking 15 each semester will allow you to finish school sooner and for less money than taking 12.

3. SPRING/SUMMER CLASSES. Taking a class or two during each Spring or Summer session may allow students to graduate more quickly.

HELPFUL RESOURCES
If you need more information about planning for college, there are plenty of resources that can help. We’ve included several here.

APPS
COLLEGEGO
Interactive games and videos to help you explore colleges, career, and financial aid.

DAILY PRACTICE FOR THE NEW SAT
A sample question each day to help students prepare for the exam.

KHAN ACADEMY APP
Mobile access to Khan Academy’s well-known videos.

NAVIANCE STUDENT APP
College and career-planning tools.

ZEEMEE
Social network created for students and colleges.

WEBSITES
College Majors 101
http://www.collegemajors101.com
What you can do with dozens of college majors.

College Navigator
http://www.nces.ed.gov/collegenavigator
A comprehensive guide to America’s colleges and universities.

College Results Online
http://www.collegeresults.org
Graduation rates for colleges and universities by gender and ethnicity.

Project on Student Debt
http://www.projectonstudentdebt.org
Information to help families make smart college cost choices.

Unigo
http://www.Unigo.com
What do students really think of their schools?

BOOKS
The Best 380 Colleges by the Princeton Review

College Handbook by the College Board

The College Solution: A Guide for Everyone Looking for the Right School at the Right
Price by Lynn O’Shaughnessy

The Secrets of College Success by Lynn F. Jacobs and Jeremy S. Hyman

Secrets to Winning a Scholarship by Mark Kantrowitz

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